Why does it matter?
Contractors and subcontractors - also known as lienholders in the context of this post - may run into difficulties with obtaining prompt payment during the course of a construction project, whether it is in completing renovations to a home residence or providing construction services to a mine. In the Northwest Territories and Nunavut, parties contracted to provide services, materials, supplies, or equipment for the benefit of a construction project may have the right to a mechanics or miners lien (the "Lien") under the Mechanics Lien Act or Miners Lien Act ("Lien Legislation").  In addition to remedies available under contract law, Lien Legislation provides contractors and subcontractors with a further option to pursue payment from the project owners if certain requirements are met.
Conversely, it is important for project owners to be familiar with Lien Legislation because contractors and subcontractors may often exercise their Lien rights erroneously, which may result in the loss of those rights. It is helpful to know when a contractor or subcontractor has exceeded its rights under the Lien Legislation. This may constitute grounds for invalidating the Liens to the benefit of the project owners.
How does it work?
Normally, parties who remain unpaid under a contract must pursue the party withholding payment under breach of contract or other associated causes of action. However, Lien Legislation gives creditor lienholders the right to register a charge against the real property interests of debtor project owners once certain requirements are met by the lienholders. In the case of a lienholder who provides construction services, such as renovations, to a residential property and remains unpaid once the work is done, the lienholder can register a charge against the legal title of the improved residential property. The charge against legal title may incentivize the party withholding payment to reach a resolution in order to remove the charge against their property because the charge may prevent or delay the transfer or sale of the property. Ultimately, a lienholder may force the sale of a property in order to satisfy a debt.
However, lienholders must perform tasks within strict timelines to preserve their Liens. For example, a subcontractor who provides materials to a construction project must register a claim of lien with the appropriate authority within a certain amount of time to "preserve" its Lien. Once a Lien is preserved, the subcontractor must ensure it "perfects" the Lien within a certain amount of time by commencing a court action and by registering a certificate of pending litigation with the appropriate authority. At any point in this process, if the subcontractor misses a deadline to preserve or to perfect the Lien, it ceases to exist and the subcontractor loses their right to pursue remedies under the Lien Legislation.
In addition to strict compliance with the timelines established in the Lien Legislation, lienholders must ensure the substance of their lien claim forms meet the requirements of the Lien Legislation. An error or omission in the content of the forms may result in the loss of the Lien for the lienholder.
If exercised correctly, liens are a powerful tool for contractors and subcontractors to encourage payment should compensation issues arise during the course of a construction project. However, Lien Legislation requires lienholders to comply rigorously with its requirements to obtain the benefits of the Lien.
Be vigilant about your rights.Oftentimes, lienholders seek legal advice regarding unpaid invoices from a construction project only after the deadline to preserve one's Lien has expired, therefore leaving lienholders without any benefit accorded by the Lien Legislation. Timelines under the Lien Legislation are relatively short, and lienholders are encouraged to act proactively and to seek legal advice during the course of a project if they suspect payment issues could become a problem.
1 In the Northwest Territories: (1) the Mechanics Lien Act, RSNWT 1988, c M-7 and (2) the Miners Lien Act, RSNWT 1988, c M-12. In Nunavut: (1) the Mechanics Lien Act, RSNWT 1988, c M-7 (Nunavut) and (2) the Miners Lien Act, RSNWT 1988, c M-12 (Nunavut).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.